For Cadillac dealers, everything revolves around one word right now: Pinnacle.
Project Pinnacle is Cadillac President Johan de Nysschen's plan to revamp the brand's retailer network by changing the way dealers are paid for the vehicles they sell and for complying with brand standards. For some small dealers, Pinnacle means they will no longer stock vehicles on site, creating "virtual showrooms" instead.
The impending launch of the program and its effect on Cadillac's network of 924 retailers has monopolized most of the past year for Will Churchill, chairman of the Cadillac National Dealer Council.
Churchill, dealer principal at Frank Kent Cadillac in Fort Worth, Texas, and other council members worked with de Nysschen to address concerns about Pinnacle as criticism poured in from dealers around the country and several state dealer associations. Cadillac twice delayed the start of the program to allow dealers more time to understand it and get positioned to earn higher payouts. It's now scheduled to begin in April, after a six-month simulation period that lets dealers see how they would have performed and make adjustments.
Churchill, 40, spoke with Staff Reporter Nick Bunkley about the council's work on Pinnacle and Cadillac's efforts to challenge German luxury brands.
Q: How was 2016 for Cadillac dealers?
A: You have to break it into a couple different buckets. From a sales perspective, '16 started off slower than most anticipated, but toward the end the sales piece of it ramped up, which has given us good momentum into '17.
There was a lot of angst in the system as a result of the Pinnacle announcement. So that took up a bunch of bandwidth with dealers and the manufacturer. Now that we're heading into our final quarter of simulation, dealers and myself included, we've come to better terms with what Pinnacle is and we appreciated the extra time to get our houses in order, and now we're ready to move forward with it.
How much did the dealer council influence the structure of Project Pinnacle?
The 30,000-foot construct is obviously Cadillac's desire for Pinnacle, but when you get down into the weeds and a lot of the minutiae, there's a lot of council input and there's continuing to be council input. One of the reasons for the delay out to April is there's issues we're all working through to better the program. This hasn't been a one-sided program. There's been a lot of council input. Obviously they have their goals and desires, and we're just trying to get the two to match.
Will Pinnacle take some time for everyone to get used to?
It will be a little bit of a learning curve, but we will have run six months side-by-side with Pinnacle and our current construct. The first month or so, it will be different but I don't think the curve will be nearly as deep as if this had launched originally in October.
What do you tell dealers who think this is going to make life harder for them?
The positive to the program is that we were very cognizant not to have a program that was volume-based. We didn't want a stair-step program. This program, it only measures your commitment level to Cadillac. For those that have a higher commitment level, which means greater expense, there should be more opportunity for financial gain.
Cadillac still has more than 900 dealers after fewer than 20 took the recent buyouts. Is that too many for a brand of this size? Does Cadillac need fewer dealers or more sales?
Well, that's the million-dollar question, right? All franchises need higher throughput. When you have a dealer body whose financial performance is less than other luxury brands, the answer is throughput. The idea behind Pinnacle was to try and find a way to take what our competitive disadvantage is, which was 924 dealers, and try and turn that into a competitive advantage. That's the reason there's five tiers. It gives everyone a chance to play. If Johan wanted to get the dealer body to whatever, he would have just had one tier, or they would have had a higher payout for the Cadillac transition. The program from conception was not to decrease the dealer body size. It was to find a way to give everyone an opportunity to play within the Cadillac brand that currently had the franchise.
What other issues do Cadillac dealers face?
There's concern with what does the '17 market look like. Our portfolio right now -- our next new vehicle is launching in roughly 2018, so we've got a year and a half without a true new product. So those are two things that are on the radar.
How are dealers getting by until those new products arrive?
The positive behind it is that's the world we've been living in for the past four years. We've had a couple new product launches, but we're not really finding new segments. So I think we just have to maximize the opportunities that are presented in front of us, which is why Pinnacle plays a very important role for the next year and a half.
What are dealers most eager to add to the lineup?
That luxury compact SUV below the Escalade is the hottest segment right now in the luxury space. And right now we only have a two-row XT5. So there's a large desire for something between the XT5 and the Escalade. And there's a desire for something below the XT5. So trying to help fill out our SUV portfolio is where dealers are screaming for product.
Johan has said a small sedan is coming. Will that help? Or do dealers just want more SUVs?
If you look at the sales data and you look at market segmentation, SUVs are where it's at. The car segments are all shrinking. If we have a choice of A or B, we obviously want product going into a growing segment, not a shrinking segment. A smaller car is great and helps you bring people into the brand that maybe couldn't normally get in there, but if we had a choice of one or the other we would take the SUVs before the car. But that's also in today's environment. If, two or three years from now, gas goes up to $4 a gallon, we'll all be screaming for cars.
Have the CT6 and XT5 met expectations?
We haven't had a full-year run of them yet, because both products were delayed from launch. In '17, the positive is we'll have a full year of XT5 and CT6. Now that SRXs are depleted off dealers' lots, the whole focus will be on XT5, and that's where our growth and our volume run is going to come from.
But are dealers happy with the vehicles?
The products themselves are really, really good. I was on a call yesterday, and one of the dealers was just raving about the CT6. We've just got to get people in it and drive it. The CT6 needs some greater awareness.
Does Cadillac need to change its marketing or do more?
When you don't have a new product launch -- a product itself can create the buzz -- but now that we're going into 18 months of no new product, marketing is going to have to play a bigger role in creating awareness, excitement and consideration for the brand. Because it won't be a new vehicle that brings people in. Marketing is going to have to play a huge part over the next 18 months. They're working on some really great creative and a new way to take the brand, realizing that's the situation. So they're being responsive to that request and desire.
What's expected for the CT6 plug-in?
Most dealers don't have high expectations for it. It's going to be a great car -- it's going to be awesome -- but it's not going to be a volume seller. A one- or two-a-month-type vehicle. And I don't think Cadillac has huge volume aspirations for it either, but for a client that is desiring that technology and that drivetrain, it answers that, so it will hopefully help us from any customers that might defect because they're looking for an alternative propulsion system.
Cadillac has had the biggest retail decline among General Motors' brands recently. What's going on?
A lot of that's driven by the fact that we had two delayed launches -- the XT5 and CT6 -- which is why the true test will be '17, when we have a full run of those vehicles. If you look at our sales decline in the first quarter, it was like jump off the top of the building. They've been able to bring back a lot of those losses and get us to the point where we're at now.
Inventories have been creeping up, with more than a 100-day supply on some nameplates. Is that concerning?
It hasn't fully developed yet as an area of concern. We had some availability issues in the middle of the year. Dealers were actually screaming for more vehicles. We had more of the other side of it. Now you're starting to see -- it's mainly your car nameplates that inventory levels are rising on. Obviously in the luxury segment, the car segments are declining, so not a huge surprise. Johan's always been very vocal about maintaining inventory levels to try and keep the pressure off degrading a brand and maintaining residuals so leasing can be a productive tool.
Do you expect to see more leasing in the year ahead?
Yes, we're focusing on leasing as a council. It's how luxury brands grow their business. One of our focuses for '17 is the whole life cycle of the customer -- trying to ensure that we are able to bring them in on a lease and then lease them two, three and four cars after that.
Is the factory doing enough to encourage sales and leasing growth?
There's always help that's needed. The biggest help will be putting the financial resources behind marketing for the next year and a half. Because the product we have is what we have, and that's what we've got to sell.
What's the key to the life-cycle approach?
The product is there. As far as getting people to stay inside the life cycle, the key is having the life-cycle plan fully baked and every dealer executing the same life cycle. A customer, in our view -- and this is a view we've taken at the council level -- if a customer gets to maturity on a lease, then we've failed. The other manufacturers, when you're 90 days out, they take you out of market and you're in another one. So if a customer gets to full lease maturity then we've failed as a goal for life cycle. So that's, I guess, our North Star.
What are your priorities for the next two years as chairman of the dealer council?
We've got to get Pinnacle launched. We've got to make sure that Pinnacle lives up to the promise -- that it improves dealer profitability. At the end of the day, our job as a dealer council is to make sure that dealers are more profitable and that both sides are winning. You can't have the manufacturer having record profits and the dealer body having record bad profits, right? We've all got to play in the same world. So we've got to get dealer profitability back to where it should be. Everything we're doing is facing dealer profitability. It's on our dealer dashboard, and we look at it every single meeting.
What should Cadillac do to help dealers handle more service business?
The service business is there. The toughest part for dealers is technicians. So we're trying to work on some retention ideas so that we don't lose technicians to other brands or other industries, through training and a couple other tools we're working on as a council. The demand, the units in operation are all there for a Cadillac dealer. We've just got to have the capacity to handle it.
What are your expectations for 2017?
The success of '17 will ride on the success of Pinnacle and vice versa. If Pinnacle turns out to not deliver the promises that were made, then '17 will not be a good year and obviously I will not have a good year financially or personally, because my phone will have 924 constituents that aren't happy. Johan is bent and determined to make this better than what we currently have, which is why you see the delays in the program, trying to make sure that it's right and that it delivers on its promise.